1) Dr. Grumpy in the House - The mind boggles at the idiocy and hilarity he sees on a daily basis. This is why I could never be a doctor - the stuff he posts on his blog sarcastically is probably what I'd end up saying to the people involved. I have, however, learned that what I really need is a prescription for Sarcasma.

Two funny videos

Becket

I watched Becket again last night. Definitely one of my favorite movies of all time - you just cant beat Richard Burton and Peter O'Toole. This is possibly the most dramatic scene I've ever seen, even if the clip cuts off the last few seconds:

Opening a Roth IRA

As soon as I figure out who my employer is, I will be opening a Roth IRA account with Vanguard. (Don't laugh at me. They require it for the paperwork, and I really don't know who is officially my employer. The structure of my fellowship is so byzantine that I can't tell if I'm employed by (a) the US Navy, (b) the DoD in general, (c) the American Society for Engineering Education which is paid to administer the program, or (d) self-employed as a contractor, though I'm pretty sure I'd know if it were that one. This is ridiculous.) For those of you wondering what a Roth IRA is, I refer you to this series over at Get Rich Slowly (he's got links at the bottom to the rest of the series).

You may say, "Why are you worrying about retirement already? That's like 40 years away!" The answer, my friends, is the magic of compound interest. The sooner you start, the less you need to sack away to pay for retirement. For example, my wife and I deciding to wait two or three more years to begin funding our retirement account(s) could mean a difference of something like a hundred thousand dollars in the retirement fund come time to retire! We'd have to contribute significantly more each year to make up that gap. (Of course that all depends on assumptions about rate of return, etc.)

So, why open it with Vanguard? Why not some other firm? First, I like their corporate structure. That sounds ridiculous, I know. But unlike every other investment firm I know of, Vanguard eliminates the need to milk the investors to return profits to the owners by actually having investors in its funds be the owners. What does that mean in real terms?

It means essentially the lowest costs out there - the second reason I'm going with Vanguard. There are no sales loads, and they charge a minuscule percentage of assets per year. For example, the fund I'm investing in charges 0.19% per year (which is essentially deducted from returns), and has no sales load. Compare this to a random Thrivent fund I looked at, which charges 1.04% per year, and has a 5.5% front-end sales load, meaning that for every $100 you invest with them, only $94.50 actually goes toward buying shares, while the rest goes toward administrative costs. The math seemed obvious to me.

These low costs are intimately connected with the investment strategy, the third reason I'm going with Vanguard. Vanguard specializes in Index Funds, which essentially embrace the philosophy that trying to beat the market is a sucker's game, and that the best strategy is to try to track the market as a whole, ensuring the investors get average gross returns. This allows them to drive costs way down, since they're rarely doing much buying and selling, and thus the investors' net returns actually end up being above average.

Finally, Vanguard offers a "Target Retirement 2050" Fund that essentially automatically executes a close approximation of what my investment strategy would be. This is an example of what's known as a lifestyle fund, where you buy shares in a fund (which in this case in turn owns shares of several index funds), essentially acquiring a well-diversified portfolio in a single fund. On top of that, this means I never need to worry about rebalancing the portfolio, since the managers of the fund do that for me, and as the target retirement date approaches, the asset allocation is shifted to gradually less risky investments. Essentially, this is the ultimate in set-it-and-forget-it retirement plans. It will automatically execute a sound investing strategy with no input from me other than my monthly investment checks, and I don't need a bajillion dollars in assets (or a fat fee) to hire a financial planner.

So why am I telling all of you this? As with my other personal finance posts, I assume that many of my friends will be at least starting to think about these things soon, and so I figure by posting about what I'm doing, I can give them a small window into the process and maybe a starting point for their own financial journey. If nothing else, at least it fills some of my spare time!

Sunday, July 19, 2009

Budgeting Software

I recently realized that I have a stable enough financial position that I should think about saving for retirement. This also made me realize that my relatively loosely structured finances need to be tightened up. A lot. Up until now we just had a sort of spending plan - don't spend more than X dollars on groceries in a week, total up monthly expenses and ensure that they were less than Y% of net income, etc. and the rest just goes into the savings account.

This worked okay, but my dive into personal finance to bone up on investing made me realize that we needed a more rigorous budgeting system if we want to achieve our medium- and long-term financial goals (like paying off my student debt, saving up for a down payment on a house, saving money to defray the initial cost of having kids someday, etc.). We needed a budgeting system that forces us to track every dollar spent and saved (or at least nearly). Our finances being somewhat more complex than I'm willing to deal with all by myself, I went looking for software assistance. My first thought was to try a service like mint.com - you need to trust them with all your online banking logins, but they automatically track your transactions and go a long way towards categorizing the expenses as well. This didn't pan out for us, because mint.com apparently does not play well with USAA, which is where we do much of our banking. This decided me on ruling out online services, as they seem to be unable to reliably retrieve USAA data.

Over at Get Rich Slowly, there was a post on replacement finance software in response to the impending demise of MS Money. This was a treasure trove of leads for me on what's out there. I eventually settled on You Need A Budget (YNAB), and will be trying it out for the next couple months. It is an application that electronically implements a version of the envelope budgeting method, which forces one to account for every single dollar spent. I can download transactions from my various accounts and import them to the program, and it allows me to classify savings in many categories, so this looks promising, but a bit painful to set up at first. It also has loads of online tutorials, but the price is a little steep at about $50. I'll let you know what I think of it after I've used it for a while.

Personal Finance Blog Roundup

If anyone else is thinking (like me) that they need to get a better handle on their finances, learn how to budget, or just find ways to be a bit more frugal, here are some of the more useful personal finance sites I've found:

Monday, July 06, 2009

Reasons Alton Brown is Awesome

Beyond the fact that he actually explains what the crap is going on during cooking, he also has a ridiculous sense of humor. I was watching Good Eats this evening, and while he was sampling the fajitas he had just prepared the following disclaimer appeared: "Professional eater on a closed course. Do not try without a napkin."

Sunday, July 05, 2009

OOPS!

Imagine, you and your kid are watching what's supposed to be a DVD retrospective of the past school year. The video shows children sharing stories, clapping, then ... sex. And not just sex, but sex involving your kid's fifth grade teacher.

"It goes from my son, straight to her on the couch," recalled "Joe," a parent who wished to remain anonymous. "My son's reaction was, 'Dad, is that Ms. Defanti?'"

Towards a Grand Unification of Cutlery

Muppet Stars and Stripes Forever!

Saturday, July 04, 2009

Book Recommendation: Investing?

I have always been of the opinion that saving money for the future is important. Really important. And just recently my wife and I have finally managed to build our savings up to the point where just letting it sit in a savings account feels a bit silly when I know there must be some way to get more than the piddling yields a savings account (or even a CD) can provide. Unfortunately my knowledge of investing was limited to something along the lines of "I hear people invest in stocks." I have recently begun to attempt to remedy this.

Allow me to recommend in turn a book that I just read on the recommendation of JD over at Get Rich Slowly: William Bernstein's The Four Pillars of Investing. It covers the basics of investing and portfolio theory in a manner that manages to be engaging and interesting despite the subject matter. (Okay, the first chapter or two is quite dry, but it picks up quickly after that.) While I am by no means now an expert, I feel like the book has given me a very basic grasp of investment strategy, which is a huge improvement over where I started. I can't recommend this highly enough if you too are reaching the point in your life where you have enough of a difference between income and expenses to know that you should be thinking about investing, and have no clue where to start.

Things it really brought home to me:

Invest young. It will compound into a much larger pile than you think by the time you're ready to retire.

I should really be dumping money into the stock market over the next few years. We're seeing a really epic bear market right now, and buying while prices are low is the way to ensure better returns - as long as you are sure you won't need to touch the money for at least five years, hopefully a decade or more.

Index funds kick the a**es of actively managed mutual funds. All funds not managed by Warren Buffet revert to the mean (market) return over time, and actively managed funds have high overhead, lowering net return. Since you can't beat the market, you want to be the market, by investing in index funds which, by definition, will give market returns (minus minimal overhead, since they are passively managed).

Don't hold too much of your money in stocks. They're too volatile to be more than 80% of your portfolio (at the reallyaggressive end). If the market tanks at the same time you need some of the money, you want to be able to get it from the bond portion, which should be relatively stable (lower returns, but they will rarely leave you in the poorhouse when the economy goes bad).

The one thing I wish it spent more time on is tax sheltering and what the tax implications of IRAs, Roth IRAs, 401(k), etc are. I'm still clueless on that front, and vague on how one goes about structuring a portfolio such that the retirement (tax sheltered portion) is kept separate from the "general savings" portions. I'm also a bit shy on the tactics of investing - how to implement a portfolio once I've decided what breakdown I want it to have in the long run, since I can't do it all at once with my very limited (at this point) funds. But the fact that I now know enough to ask, and hopefully understand the answers, is a big step. The book was well worth the $20 I spent on it.

On a related note, Econtalk a couple years ago had a podcast with John Bogle (founder of Vanguard) about his invention of the index fund. Fascinating, and a good basic intro to index funds in general.

6) On a similar note, police need more training on dealing with dogs, so they have more options than "shoot it once" or "shoot it several times" when dogs do unexpected things. Radley Balko has a puppycide roundup including (a) an office shooting a five pound chihuahua and (b) cops shooting and killing a properly tethered dog because it was fighting with their unleashed police dog.

7) I think the meter maids responsible for this need a lecture or two on their observational skills:

A man's decomposing body inside a minivan covered in parking tickets went undiscovered for weeks because the vehicle's windows were apparently tinted and ticketing officers don't normally search cars, police said Friday.